Don’t Let This Bogus Idea Fool You

The nature of The Daily Reckoning has always been to defend the underdog, nurture the outcast and forgive the fool his faulty reasoning. DR chief Bill Bonner has always maintained there’s a little bit of that in all of us, probably most of the time, alongside vanity.

But sometimes we have no choice but to sharpen our critical spear, and drive it through bogus arguments and absurd ideas. Today is one of those times.

Take, for example, a recent piece Tim Harford wrote in the Financial Times. He’s reflecting on a prediction John Maynard Keynes made in 1930.

Keynes speculated that, in 100 years, economically we would be eight times better off than those living then. But Keynes also thought — more importantly in this instance — we would only be working 15-hour weeks. We’re supposed to be wondering what to do with all our free time by now.

The idea was the economic gains were going to be so prodigious than leisure would inevitably become more prominent than work in our lives. We did get the economic gains — but yeah right on the leisure front.

But the point is not that Keynes was off on the number of hours we still work. After all, 99% of us will look silly looking back 85 years from now based on what’s said today. The point is what Hartford attributes to the reason.

He puts it like this, ‘So where did Keynes go wrong? Two answers immediately spring to mind — one noble, and one less so. The noble answer is that we rather like some kinds of work. We enjoy spending time with our colleagues, intellectual stimulation or the feeling of a job well done. The ignoble answer is that we work hard because there is no end to our desire to outspend each other.’

That’s an easy conclusion to agree with I suppose. But it blinds you to the economic reality.

The closest Harford gets to the truth is when he refines his idea down to our desire (and ‘ferocious’ competition) for the limited supply of ‘pleasant areas with good schools’. Then he wanders off the intellectual path and attributes the endless work hours to the general rat race of corporate life.

As George Orwell once wrote: only an intellectual could believe such a thing. No ordinary man could be such a fool. The truth is we’re all slaves to the land price. Every mortgage payment you’ve ever made is proof of that.

The unspoken truth few can tell you is that every development over time takes land prices ever higher. And we all need to keep working harder and harder to afford it. That’s why we still work a 40 hour week and now most families need two income earners instead of one.

Allow history to demonstrate this point. Your editor delved into some history last week. An old pamphlet called The Economic Effect of Land Values on Labor and Wages came across our desk. A man called EJ Craigie wrote it. It’s a historical look on the different developments of Swan River in Western Australia and the founding of South Australia as a colony.

One of the ‘problems’ of colonial Australia, where there was no convict labour, was that businessmen who needed labor to work their lands had to pay for workers to come over from England.

When the English got here, they commanded high wages. Even so, the landed class in Western Australia, for example, couldn’t hold onto them. With so much free land available, there was every incentive for a man to set up his own homestead. They walked off the job. The men who paid for them to come out had to write off the cost of transporting them.

In some cases, labor couldn’t be had at any price. That meant there were men who had invested in capital — say seeds or livestock — who then watched it rot or die because there was no one to work it. Though it began as a free colony, in 1840 Western Australia began importing convicts to work the land.

The men who wanted to establish the ‘free state’ of South Australia had to find a way to find people willing to work for wages. Government land sales would pay to transport workers from England to Australia. But how to keep them?

Here’s how a report at the time nutted it out:

‘Hence in determining the proper price of public lands in the new colony, two have to be considered: first, the price necessary to convey to the colony the number of laborers to cultivate the land in the most profitable manner.

‘And, second, the price necessary to prevent the laborers so conveyed from acquiring property in land before they had worked for wages for a sufficient period. In order to accomplish the latter object, it is not improbable that, at an early period after the arrival of the Governor, it may be desirable to raise the price of public lands over one pound per acre.’

That is to say, no free land grants as had taken place in Western Australia. You had to pay for it. In order to do so, you had to work for wages.

Never mind Keynes prediction about the hours we would work. Look at the demonstrable fact of the rise in land values in South Australia from 1837 to 1950. This is thanks to EJ Craigie.

Callum Newman

Callum Newman is the editor of The Daily Reckoning and Associate Editor of Cycles, Trends and Forecasts. He also hosts The Daily Reckoning Podcast.
Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with.
Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect.
To have Callum’s thoughts and insights on the current state of the currency, commodities and stock markets delivered straight to your inbox, take out a free subscription to The Daily Reckoning here.

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